Effect of Cost Leadership on the Performance of SMEs in Nakuru, Central Business District, Kenya

Abstract

A plan is considered to be a cautious set of events for attaining advantage that is competitive, giving direction as well as coherence to some of the organization. The way strategy is implemented is a key focus within the Small as well medium-sized initiatives (SMEs) because of its part in generating economic wealth. The use of strategic management has many advantages, however, there are still many SMEs organizations resisting its implementation especially because most people think the procedure is usually valuable for greater businesses and do not distinguish it is supportive for SMEs as a whole. The purpose of the study was to determine the effect of cost leadership and performances of small and medium enterprises within Nakuru, CBD. The study adopted Porter's theory of competitive advantage; Resource based view and McKinsey 7S Model. The study adopted cross-sectional survey design. The study target population was business owners or persons in charge of businesses situated within Nakuru CBD. The study concentrated on 5 most common types of businesses in Nakuru CBD. The study adopted stratified random sampling. The researcher used 30% of the population to arrive at sample size. The researcher used the questionnaire as the primary data collection instrument. Quantitative data was analyzed through the use of expressive and inferential indicators. Descriptive statistics included frequencies, percentages, measures of central tendencies (mean) and actions of scattering (standard deviation). Inferential statistics, particularly regression and correlation analyses were used to establish mathematical models and nature of relationships between variables respectively. Results revealed that Product Differentiation was found to be a satisfactory variable in performance of SMEs. This was supported by coefficient of determination also known as the R square of 53.2%. This meant that product differentiation strategy explain 53.2% of the variations in the dependent variable which was performance of SMEs. The results further meant that the model applied to link the relationship of the variables was satisfactory. The correlation analysis reported that a strong positive and significant relationship exist between cost leadership and performance of SMEs (r=0.76, p=0.001).Regression results revealed that Cost leadership was found to be a satisfactory variable in performance of SMEs. This was supported by coefficient of determination also known as the R square of 49.8%. This meant that Cost leadership strategy explain 48.9% of the variations in the dependent variable which was performance of SMEs. Hypothesis test results further revealed that Cost leadership strategy has no significant effect on the performance of SMEs in Nakuru CBD (p=0.001) leading to the rejection of the null hypothesis. Based on the research findings, the study recommended that SMEs should always aims at lowering the cost of production in order to reap optimal profits. The study also recommended that market segmentation should be adopted by SMEs to ensure that they stock products or provide services to a variety of customers. Other studies could consider competitive strategies such as innovations and their influence on business performance.